House deposit said Thursday it will open four new distribution centers as it seeks more sales from remodelers, contractors and other home professionals.
The new distribution centers are expected to open in the first half of the year in Detroit, Los Angeles, San Antonio and Toronto. The facilities make room for the bulky size, wider variety and larger orders of products needed by professionals, such as lumber, shingles and insulation, which can then be delivered directly to the job site.
Each facility averages about 500,000 square feet, about five times the size of an average Home Depot store.
The expansion of distribution centers is part of a years-long company strategy to attract professionals to take on larger, more extensive projects, such as a major renovation or a kitchen remodel. Home Depot has opened 14 similar distribution centers to serve professionals in major metropolitan areas, starting with the first one that opened in Dallas in 2020.
Home Depot gets about half of its total sales from professionals and the other half from do-it-yourself customers, such as homeowners tackling a painting project.
However, winning more business from professionals has become critical as Home Depot tries to return to growth and navigates a higher interest rate environment that has slowed housing turnover and cooled demand for home improvement projects. .
Home Depot's sales declined 3% in the last fiscal year as customers took on fewer projects after the pandemic. The company said it expects total sales to grow about 1% this fiscal year, including an additional week's increase. It anticipates comparable sales, excluding the impact of store openings and closings, to fall about 1%, excluding the additional week.
Surpassing those lackluster expectations could depend on professional customers, who typically spend more and more compared to DIY customers, said Chip Devine, Home Depot's senior vice president of outside sales, who oversees the company's professional business. They also need more specialized sellers and services, which means they are less likely to switch retailers or switch to a competitor.
“We interact with them five times a week,” he told CNBC. “That relationship over time makes you a partner in their business, and that's easier than capturing the elusive consumer.”
Additionally, he said, professionals handling more complex projects have historically used Home Depot as a convenience store where they purchase only a few items. That gives Home Depot plenty of room to grow as it adds capabilities to handle all of the professionals' orders, he said.
On the other hand, it is harder to sell to do-it-yourself customers. They have made fewer discretionary purchases and tackled smaller home projects in recent quarters. Expensive transactions, or those priced more than $1,000, fell nearly 7% in the fourth quarter compared to the same period a year earlier, the company said on its earnings conference call last month.
Home Depot is changing other aspects of its business to support professionals who handle complex and expensive projects. It is piloting a program that offers trade credit to professionals, meaning Home Depot underwrites a large order and does not charge the professional customer until it is delivered, a standard that is common in the industry, Devine said.
The retailer also expanded its sales force dedicated to professionals. And it has added digital and personalized features for professionals, such as tools that help manage complicated orders and a loyalty program that offers benefits.
In a CNBC interview, CEO Ted Decker described developing the professional business as one of three key priorities for the year, along with building new stores and creating a more seamless experience for customers.
He said Home Depot is trying to bring to the professional business what it once did to DIY: become a one-stop shop.
“Before Home Depot came along, a consumer doing a project would run to all these different stores,” he said. “You have a hardware store. You have a paint store. You have a flooring store. The professional is doing the same thing.”
